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2017 (7) TMI 373 - Tri - Companies LawAcquisition of the shares of the Petitioner Company, in violation of the Regulation 13 of the SEBI (Prohibition of Insider Trading) Regulation, 1992 - Prohibition of Insider Trading - Held that - The term person in Regulation 13 of the SEBI Prohibition of Insider Trading Regulation, 1992 shall be construed to include a company as well and not only an individual. R1 being a company, to have acquired more than 5% shareholding in the Petitioner Company, is therefore liable to serve the declarations under the SEBI SAST Regulations, 1997 and SEBI Prohibition of Insider Trading Regulation, 1992 as well. However, R1 had failed to serve the declaration under the latter regulation which it had rectified after the Petitioner had filed the present company petition on the 19th July, 2004. The declaration so filed at a later point of time on 24th August, 2004, is in violation of the SEBI Prohibition of Insider Trading Regulation, 1992 and is not valid for the reason that the said declaration had to be filed within four working days of the receipt of intimation of allotment of shares or the acquisition of shares or voting rights, as the case may be, as per the SEBI Prohibition of Insider Trading Regulation, 1992. Thus it clearly indicates that R1 was in default for not having served the declaration under the SEBI Prohibition of Insider Trading Regulation, 1992, when its shareholding in the Company exceeded 5%. The present Company Petition is allowed. The Respondents having furnished the declaration at a later point of time are hereby barred from exercising their rights as to the shares acquired by them in the Petitioner Company in excess of 5%. The Company is hereby authorised to buyback the shares that the Respondents hold in excess of 5% of the shareholding in the Company at the rate which was prevailing on the date of presentation of the Petition or market value, whichever is higher. The Respondents are directed to hand over the share certificates and share transfer forms within 30 days of the order to the Company and in response to that the Petitioner will be liable to pay the buyback price which shall be the value of shares which was prevailing on the date of presentation of the petition or market value whichever is higher. It is clear that the power exercised by the Company Law Board and the powers exercised by the SEBI fall in different and distinct jurisdictional fields. Therefore, the present order shall not preclude the jurisdiction of SEBI as an adjudicating authority for deciding on the violation of SEBI Regulations as have been laid down in the present petition.
Issues Involved:
1. Validity of acquisition of shares by the Respondents without complying with statutory disclosure norms under SEBI Regulations. 2. Whether the petition is barred by limitation under Section 111A (3) of the Companies Act, 1956. 3. Interpretation of the term "person" under Regulation 13 of the SEBI (Prohibition of Insider Trading) Regulations, 1992. Issue-wise Detailed Analysis: 1. Validity of Acquisition of Shares: The Petitioner alleged that the Respondents acquired shares of the Petitioner Company without making mandatory disclosures under the SEBI (Prohibition of Insider Trading) Regulations, 1992, and SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997. Specifically, the Petitioner claimed that the Respondents did not disclose their shareholding exceeding 5% as required under Regulation 13(1) of the Insider Trading Regulations and Regulation 7(1) of the Takeover Regulations. The Respondents admitted to the delay in disclosure but contended that the non-compliance was inadvertent and rectified later. However, the Tribunal held that the late disclosure was in violation of the SEBI Regulations and invalid. The Tribunal concluded that R1 was in default for not serving the declaration under the SEBI Prohibition of Insider Trading Regulation, 1992, when its shareholding exceeded 5%. 2. Limitation: The Respondents argued that the petition was barred by limitation as it was filed beyond the two months period prescribed under Section 111A (3) of the Companies Act, 1956. The Petitioner countered that they became aware of the violation only on 4th June 2004, and filed the petition on 19th July 2004, within the prescribed period. The Tribunal accepted the Petitioner's contention and held that the petition was filed within the limitation period. 3. Interpretation of "Person": The Tribunal examined whether the term "person" under Regulation 13 of the Insider Trading Regulations could include "persons acting in concert." The Tribunal noted that while the term "persons acting in concert" finds mention in the Takeover Regulations, it is not used in the Insider Trading Regulations. However, the Tribunal interpreted "person" in Regulation 13 to include entities like companies and associations, as per Section 3(42) of the General Clauses Act, 1897. Therefore, R1, being a company, was liable to make the necessary disclosures. The Tribunal further opined that all Respondents could be considered jointly liable under the concept of "control in the management" of the Petitioner Company. Conclusion and Order: The Tribunal concluded that the acquisition of shares by the Respondents in excess of 5% without proper disclosure was in violation of SEBI Regulations. Consequently, the shares acquired in excess of 5% were to be offered for buyback by the Petitioner Company at the market value prevailing on the date of the petition or the current market value, whichever is higher. The Respondents were directed to hand over the share certificates and transfer forms within 30 days. The Tribunal clarified that this order did not preclude SEBI's jurisdiction to adjudicate on the violation of SEBI Regulations. The petition was allowed, and no order as to costs was made.
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